For the Poor Beef Cow Guys

by John DePutter, March 25th, 2013

Here’s an e-mail I recently received from a person in the cow-calf business:

“Why would a young guy ever want to get into beef cows? We are being challenged in many ways: shortage of feed, expensive feed, cropper guys are bidding 2-3 times on the rent for our pastures and hay ground, and we are growing old as an ag sector… John, why would a young guy ever want to get into beef cows?” Signed, poor old beef cow guy.

This e-mail came to me even though calf prices are well above where they were three years ago and farther back in time, so gross income for lots of farmers selling calves is not bad. It’s the net income that’s not great. Especially when you consider the work that goes into this business and way of life.

Everything is relative and when people with cow herds look at the money generated by cropping operations, and the equity leaps in the land cash-crop farmers own, the cow-calf industry really looks like it’s been left in the dust.

I called the fellow who e-mailed because I wanted to talk with him personally. We discussed some of the various issues facing the beef industry and what might lie ahead.

We covered the same ground that a lot of farmers will be aware of: that the price cycles have favoured grains over livestock, to the extreme, and that eventually the cycles will probably swing the other way.

We agreed that statistically the beef industry in North America has seen such tough times that the cow herd has shrunk to what could be a very bullish supply.

We talked about the feeling that every time the beef business looks like it’s in for some good times something goes wrong – with just a few recent examples being the 2012 US drought and resultant dear feed; implications of COOL legislation in the US; media scares related to food safety; cutbacks in US processing capacity and US food safety inspectors… We agreed that one of these days the bad luck in the business should run out – at least in theory!

I added a new twist to the conversation: A way of looking at the business that I feel not enough people talk about. My thoughts apply not just to beef but to other meats, too.

There seems to be a pervasive belief these days that growing crops is where it’s at – that this is the business to be in for the future.

Well, if you believe that, then you also need to believe the meat industry, which includes the beef industry, has a future – and maybe even a better one than crops.

I say this because the very reason that most crops are grown in this country is to feed animals and birds for meat. Even in the US where growing corn for ethanol has exploded the past several years, about the same amount of corn is used for feed as ethanol. Actually, a lot more corn is used for meat than fuel when you factor in the feed by-products from ethanol plants (i.e. primarily DDGS). Likewise, the greatest use of the soybean is to produce protein meal for feed.

It is the producers of meat who are the biggest customers for crop farmers. You can’t have a healthy grain sector without healthy livestock and poultry sector customers.

The point is that grains are a raw material and meat is a finished product. It is unsustainable to have a long time during which raw materials (e.g. grain and soybeans) are too high priced to profitably produce the finished product (e.g. meat).

We have already had a prolonged period like that. Something has to change. Indeed, I believe the change is occurring now – that it has been occurring for some time, as high grain prices are encouraging more production even while lack of profitability in livestock and poultry is reducing consumption.

Some might say the outlook is okay for pork and poultry – not to mention aquaculture – but not beef. They say those other meat and protein sources will fill the demands of a growing global population. And that’s partly true. Beef will take a smaller piece of the meat pie, not necessarily because consumers want less but simply because there’ll be less produced.

But within that mix of meat and other proteins, even with beef constituting a smaller percentage, I bet there’ll be enough demand that the marketplace will develop an increasing premium for those smaller available quantities of beef. Especially high quality beef. The highest paying sectors of the food business will be the ones left in the game.

Back to the young person: Working with cows and calves is a way of life – a sector of agriculture that is not as industrialized as most, a sort of throwback to the past in some ways, yet with modern twists. It is the linkage to the older ways yet with new technologies in breeding, nutrition and other developments that gives it its own special character – its own draw. There’s nothing like working with animals and teaching your kids about working with them… So if you like it, go for it. There is a long-term future.

To the tired old beef guy, give the world just a little bit more time to see what happens with a good corn crop or two, before you sell your cows.